Archive for the ‘Securities America’ Category

In a potentially costly blow to the brokerage firm Securities America, a federal judge in Dallas ruled on Friday that hundreds of arbitration claims against the company should move forward rather than being stuffed into a catch-all class-action lawsuit.

The case, which was heard by Judge Royal Furgeson, stems from litigation against Securities America, a division of Ameriprise Financial, one of the country’s largest advisory firms. Securities America sold hundreds of millions of dollars of so-called private placement notes in Medical Capital Holdings, which in 2009 was found to be fraud. Since then, Securities America has come under fire for failing to provide adequate due diligence on Medical Capital.

Many investors filed arbitration claims against Securities America. Recently, however, Ameriprise, Securities America and class-action lawyers, who represent other clients of the brokerage firm, struck an agreement that would affect all investors — regardless of how they chose to make their legal claim. Collectively, investors lost about $400 million. The deal would have halted all arbitration claims, leaving investors with the ability to recoup about 10 cents on the dollar from a settlement fund worth $48 million.

On Friday, lawyers who attended the session said Securities America pleaded poverty, saying the firm did not have enough cash on hand to pay if the arbitration claims start to add up. Regardless, the judge ruled that the arbitration claims should move forward along with two separate state enforcement actions that class-action lawyers had also tried to halt.

A FINRA arbitration panel ordered Securities America to pay an investor more than $1.2 million in damages related to losses in promissory notes issued by Medical Capital Holdings Inc., which entered receivership in 2009. The sum included $250,000 in punitive damages.

The case, decided on Dec. 31, was the first among dozens of arbitration cases against Securities America involving its sale of Medical Capital notes to proceed to an arbitration hearing, a Securities America spokeswoman confirmed. Private placements are sales of unregistered securities that are supposed to be marketed only to institutions and sophisticated individuals who meet certain income and net worth requirements.

Josephine Wayman, a California-based investor, filed the case against Securities America and one of its brokers, Randall R. Talbott of Newport Beach, Calif., in late 2009, alleging misrepresentation and fraud, among other things, according to the ruling. She sought $729,000 plus interest, legal fees, punitive damages and other relief. The panel ruled that Securities America and Talbott as jointly responsible for more than $905,000 of the total award, including $734,000 in damages plus interest, $111,465 in legal fees and $59,883 in expert witness fees, according to the award. The firm and Talbott must also pay an additional $17,000 in hearing fees, which are typically split between the parties in most cases.

Securities America, however, is solely responsible for the $250,000 in punitive damages. The panel didn’t fully explain its decision, as is customary in arbitration rulings. One paragraph of the ruling, however, suggests that issues related to witnesses and the discovery phase of the proceeding, when parties exchange information, may have prompted the punitive damages.

Last week Securities America CEO Steve McWhorter announced his decision to retire after 22 years of service. His stated reason for leaving is that he wishes to spend time with his family, and he has stressed that there is no underlying reason for his departure. Despite this, some are questioning the timing of his announcement as a spate of client arbitration claims hit the Financial Industry Regulatory Authority (FINRA).

This string of complaints stem from multiple Securities America products ranging from the now defunct Medical Capital Holdings Inc., to Tenants In Common (TIC) products that have failed. Medical Capital is perhaps the most flagrant managerial failure for Securities America as a court appointed receiver has demonstrated overt fraud in court filings on the part of the medical receivables company. Clients of Securities America have lost millions as a result of this and other product failures.

Despite these recent failures, McWhorter is praised for the growth of Securities America during his time there. He is expected to remain in his current position until a willing replacement is found, and given the great deal of disgruntled clients and scrutinizing regulators, he may be waiting quite some time.

In a recently filed lawsuit, Securities America Inc. is charged with continuing to sell offerings of a faulty private placement after an executive at the firm sounded the alarm bell concerning the problem investment last year.

In addition to this allegation, the lawsuit further charges that Securities America sold millions of dollars’ worth of notes of Medical Capital Holdings, Inc. In July, the SEC charged Medical Capital with fraud in the sale of $77 million of private securities in the form of notes. Since that time, a court-appointed receiver has questioned the value of the company’s assets, throwing into question the structure of the six deals it sold from 2003 to 2008.

W. Thomas Cross, an executive at Securities America, wrote to a Medical Capital official that he feared a run on the bank because of issues at Medical Capital. Allegedly, this written comment was made months before Securities America ceased selling the now infamous private placement.

An official with Securities America said the claim that the company continued selling Medical Capital notes after Mr. Cross’ raised concerns is preposterous.
In total, Medical Capital raised $2.2 billion from investors. Given the legal circumstances surrounding Medical Capital Holdings Inc, this is undoubtedly only the beginning salvo of lawsuits brought about by defrauded investors.

The law firm has been contacted by investors and is preparing to file additional FINRA arbitration claims against broker dealers for losses incurred based on the recommendation to purchase Medical Capital securities.

The individual brokers and individual advisors who sold Medical Capital are not targets of investor claims.

“Investors should be aware of a pending class action, said attorney David S. Harrison. “The class case may have certain pitfalls that investors should be aware of in selecting an attorney. Most individual investors will fare better by pursuing an individual FINRA arbitration.”

On August 3, 2009 the Securities and Exchange Commission (SEC) sought emergency relief. The SEC has alleged that investors were defrauded among other things, by Medical Capital’s misappropriation of approximately $18.5 million of the $76.9 million raised through the sale of MP VI notes to pay administrative fees to MCC.

“Often the most important choice an investor makes following a disaster like Medical Capital is the remedy they will pursue to vindicate their rights,” said attorney Ryan K. Bakhtiari. “Investors should carefully consider their options.”

Important Facts to Consider Prior to Joining a Medical Capital Class Action

— Many investors may have viable claims based on the investments
unsuitability. Because a suitability claim is dependent on an
individual’s circumstances, this claim cannot be prosecuted on a
class wide basis.
— Investors with significant losses are unlikely ever to be made
whole in a class action.
— Class actions sometimes create hurdles to recovery for individual
investors including depositions and motion practice which are
generally not permitted in securities arbitrations decided before
FINRA. The FINRA arbitration process can usually be completed in a
much shorter period of time, often 15 months. Recovery through a
class action may take several years.
Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters.

In the first case of its kind, NASD announced today that it has fined Securities America, Inc. of Omaha, NE, $375,000 for improperly sharing directed brokerage commissions from a mutual fund company with Michael Bullock, a former Securities America broker in the Los Angeles, CA area. NASD also found that Securities America failed to adequately supervise Bullock’s communications with his union-sponsored retirement plan clients to ensure that Bullock disclosed his additional compensation to those clients.

In a separate complaint, NASD charged Bullock with improperly receiving directed brokerage commissions and other compensation of more than $280,000. Bullock was also charged with misrepresenting and failing to disclose this compensation to his union retirement plan clients – at the same time he was advising those clients to maintain or include the fund company’s mutual funds in the retirement plans they offered to working and retired union members.

Securities arbitration and litigation on behalf of institutional investors, municipalities, high net worth investors, retail investors, individual investors, and employees in California, Texas, New York, Washington D.C. and around the country, including the major metro areas of Los Angeles, San Francisco, San Diego, Dallas, Houston, New York, and more. We are securities fraud lawyers/investment fraud attorneys focused on all types of financial fraud cases.